Diaz Company issued $180,000 face value of bonds on January 1, 2016. The bonds had a 7

Question:

Diaz Company issued $180,000 face value of bonds on January 1, 2016. The bonds had a 7 percent stated rate of interest and a five-year term. Interest is paid in cash annually, beginning December 31, 2016. The bonds were issued at 98. The straight-line method is used for amortization.

Required

a. Use a financial statements model like the one shown below to demonstrate how (1) the January 1, 2016, bond issue and (2) the December 31, 2016, recognition of interest expense, including the amortization of the discount and the cash payment, affect the company€™s financial statements. Use + for increase, - for decrease, and NA for not affected.

Diaz Company issued $180,000 face value of bonds on January

b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2016.
c. Determine the amount of interest expense reported on the 2016 income statement.
d. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, 2017.
e. Determine the amount of interest expense reported on the 2017 income statement.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...